Did Tax Reform Kill The Luxury Market?

The new tax code limits the deduction of state and local property taxes, as well as income or sales taxes, to a total of $10,000. When the tax reform legislation was put into law at the beginning of the year, some “experts” felt that it could have a negative impact on the luxury housing market.

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Capital Economics:

“The impact on expensive homes could be detrimental, with a limit on the MID raising taxes for those that itemize.”

Mark Zandi of Moody’s Analytics:

“The impact on house prices is much greater for higher-priced homes, especially in parts of the country where incomes are higher and there are thus a disproportionate number of itemizers, and where homeowners have big mortgages and property tax bills.”

The National Association of Realtors (NAR) predicted price declines in “high cost, higher tax areas” because of the tax changes. They forecasted a depreciation of 6.2% in New Jersey and 4.8% in Washington D.C. and New York.

“Median home values nationally rose 8 percent in March compared with a year earlier, while neighborhoods of San Francisco and San Jose, California, have increased more than 25 percent.

Prices in affluent areas in Delaware and New York, such as the Hamptons, also surged more than 20 percent.”

The people at the Home Price Expectation Survey are saying we’re going to end this year at about 5.9% annual appreciation. Next year, it’s still going to be above average at 4.2%, much lower than it has been the last couple of years. The number of homes for sale coming on to the market has been improving throughout the course of the year, 2018. Only now in the Fall are we beginning to see enough inventory starting to catch up to buyer demand. That will continue for the next several years which will result in a slight slowdown in home appreciation. This is totally normal and expected.

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As we get closer to an economic slowdown, as we get closer to the 2020election, we’re going to see all sorts of crazy headlines and fear mongering.

Read: 2019 Housing Market Forecast

I think that people are going to try to take advantage of a normal economic slowdown and start running around saying, “The sky is falling,” and that’s going to cause people to panic.

Questions & Comments

Feel free to share your experiences or ask any questions you may have.